(Pix (c) Larry Catá Backer 2015)
On 20 May, the European Parliament voted in favor of a proposal for a binding regulation on conflict minerals throughout sourcing enterprises' supply chains. Discussions on details of the final regulation are underway with EU member states. European Parliament, On the proposal for a regulation of the European Parliament and of the Council setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas (COM(2014)0111 – C7-0092/2014 – 2014/0059(COD) P8_TA(2015)0204)
The EU "Supply-Chain Due Diligence" standards will be based on the OECD Due Diligence Guidance recommendations, created to help companies respect human rights and avoid contributing to conflict through their mineral purchases from conflict areas. More HERE. The March 20915 Opinion of the EU Parliament Committee on Development follows below.
Some background, thoughts and links to materials follow.
NGOs used the opportunity to circulate an open letter urging an approach to regulations that
--requires all companies bringing minerals into the EU – whether in their raw form or contained in products – to carry out supply chain due diligence and publicly report in line with international standards
--is flexible enough to cover,in the future, other resources that may be linked to conflict, human rights abuses and corruption (157 NGOs sign open letter calling for stronger EU conflict minerals regulation, Business and Human Rights Resource Centre May 20, 2015).
Resources on conflict minerals may be accessed here.
DRAFT EUROPEAN PARLIAMENT LEGISLATIVE RESOLUTION
EXPLANATORY STATEMENT
OPINION of the Committee on Development
PROCEDURE
European lawmakers burst into applause Wednesday after the chamber voted to force European companies to ensure the minerals they import – or products that contain such minerals - are not contributing to conflict or human rights abuses in other countries.
The law is modeled on the United States’ Dodd-Frank Act, under which U.S. companies must inform regulators if they use metals from D.R.C. or neighboring countries. (Henry Ridgewell, Europe Follows US Lead in Tackling ‘Conflict Minerals’, Voice of America (May 22, 2015))
Not everyone was happy. Trade representatives suggested the difficulty, one already well articulated in the United States. "Cecilia Malmstrom, EU Commissioner for International Trade, noted the risk of trade diversion. "We do run a high risk of further disrupting global supply chains and driving them away from Africa altogether. We also risk creating trade diversion resulting in prejudice against individual countries or even the whole continent and that would to plummeting prices for minerals from certain origins," said Malmstrom."" (Ibid). One should keep this opposition firmly in mind as the proposal now goes to the EU Member States for consideration.
At the same time, global enterprises are already well aware of the move among developed states toward behavior norms that seek to create incentives for enterprises to apply international norms in their operations in weak governance zones. See discussion in Larry Catá Backer, Corporate Social Responsibility in Weak Governance Zones (CPE Working Paper 2-2015).
The EU Parliament's Explanatory Statement follows:
EXPLANATORY STATEMENT
On 5 March 2014 the European Commission presented a legislative proposal aimed at making it more difficult for armed groups in conflict-affected and high-risk areas to finance their activities through the mining of and trade in minerals. The focus of the approach is to make it easier for companies to source tin, tantalum, tungsten and gold responsibly and to encourage legitimate trading channels.
Historical context
This proposal is an EU contribution to international efforts to address the problems in countries rich with resources but vulnerable to armed conflict, such as the Great Lakes Region and learns from these efforts. The two best-known were adopted in 2011 and 2010 respectively: the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Due Diligence Guidance) and Section 1502 of the United States Dodd-Frank Wall Street Reform and Consumer Protection Act.
Content
The Commission proposes a draft Regulation, also as a reply to Parliament resolutions, setting up an EU system of self-certification for importers of tin, tantalum, tungsten and gold that choose to import responsibly into the Union. Self-certification requires EU importers of these metals and their ores to exercise 'due diligence' – i.e. to avoid causing harm on the ground – by monitoring and administering their purchases and sales in line with the five steps of the Organisation for Economic Cooperation and Development (OECD) Due Diligence Guidance. The Regulation gives EU importers an opportunity to deepen ongoing efforts to ensure clean supply chains when trading legitimately with operators in conflict-affected countries. To increase public accountability of smelters and refiners, enhance supply chain transparency and facilitate responsible mineral sourcing, the EU aims to publish an annual list of EU and global 'responsible smelters and refiners'. With more than 400 importers of such ores and metals, the EU is among the largest markets for tin, tantalum, tungsten and gold.
Support for the Commission proposal
Your rapporteur generally supports the proposal for Regulation of the Commission. The proposal focuses on the most effective level of the EU supply chain for these minerals, the smelters and refiners of minerals in order to facilitate the flow of due diligence information down to end users. Smelters and refiners are the last point at which the origin of minerals can be traced. Any information that can be obtained from smelters and refiners about their suppliers is important for due diligence. The Commission proposal enables EU companies to better comply with Dodd Frank requirements.
Your rapporteur also agrees to that this EU system (like the OECD Guidance) should cover all Conflict-Affected and High Risk Areas. Different from the US Dodd Frank Act which so far only focuses on the Great Lakes Area, the EU wants companies all around the world to avoid doing harm. Your rapporteur is of the views that the EU should not draw up a list of Conflict-Affected and High Risk Areas, but rather providing companies with the tools they need to do due diligence in a handbook.
Your rapporteur also supports the voluntary approach, which is reflected in the Commission proposal. Your rapporteur believes that market pressures in the small transparent market of importers and smelters and refiners should lead to high levels of participation. Your rapporteur welcomes the accompanying measures foreseen in the accompanying communication(1) to promote high levels of participation and hopes that not only these measures can be implemented in parallel with the Regulation, but that Parliament will also be kept informed of their implementation.
Moreover, your rapporteur is of the opinion that the choice for the voluntary approach enables the EU to work more effectively with supply chain due diligence schemes developed by business associations, which in line the OECD guidance have set global standards on their domains.
Responsible importers can only source from smelters/refiners with a third-party audit. Via those audits, the EU system will therefore give a good inside in the suppliers and mines. Gradual increase in the number of audited smelters will allow adaptation of the sector to the rules without supply shocks.
The voluntary approach will interest the avant-garde of responsible companies to participate. This group will gradually enlarge due to market competition pressures. Companies can choose to join at their own speed. A decision to join can be well-prepared and the costs and impacts limited.
Your rapporteur wants to work with responsible business to avoid temporary supply shortages, avoid reducing economic activity in conflict affected areas and to promote legitimate trade.
Non-Financial Reporting Directive
Your rapporteur favours the use of existing tools to promote reporting on supply chain due diligence of trade in minerals. The Directive on disclosure of non-financial and diversity information by large companies and groups requires large companies with more than 500 employees to disclose information on policies on human rights, anti-corruption and supply-chain due diligence. The Directive provides for the Commission to develop guidelines in 2016 in order to facilitate the disclosure of this information from the entry into force in 2017. Your rapporteur will contribute to convincing the Commission to including in those guidelines performance indicators with regard to disclosure obligation with respect to trade in minerals covered by this Regulation. Problems in relation to company's involvement in trade in conflict minerals, with as possible side effect the fuelling of conflict, is too important to ignore in this context. Once the Commission has committed to this, reporting requirements such as foreseen in the OECD Guidance will then also be operational for large EU companies.
Small and Medium Size Enterprises
Your rapporteur is of the opinion that SMEs should be put in the position to participate in the EU system if they want to be part of the avant-garde, but does not want to force them. Your rapporteur is of the view that also in this respect the Commission is right to choose for the voluntary approach. With the right incentives and assistance, as foreseen in the accompanying measures, SMEs can be convinced to participate out of their free will and in line with their business logic.
Making the Regulation more efficient
Your rapporteur proposes more amendments with the aim to make the Regulation more efficient. In order not to punish the environmentally friendly operators, according to your rapporteur it is correct to follow the OECD and exclude metals that are reasonably assumed to be recycled. It does reflect both the practical wisdom of the OECD guidance as well as the due diligence that continuously will be needed to stop abuse.
Many other supply chain due diligence systems have been developed. Your rapporteur wants to avoid double auditing. A voluntary system should be as efficient and effective as possible. The Commission should develop the right tools to evaluate the work of the other supply chain due diligence systems. Clear criteria should be developed to decide which of those systems should be recognized.
Your rapporteur favours the three year review as an important moment to building the most efficient system. The timing of the review will however depend on when the system will be operational. Two yearly cycles need to have gone through before a review can be conducted seriously.
Increasing participation in the scheme with the right incentives
Your rapporteur wants to give maximum visibility to those companies that do the right thing. The smelters list should include a column with the mineral and group the smelters/refiners by mineral so that importers and others can easily consult the document.
In the same vein your rapporteur wants to establish a list of responsible importers. Those importers that decide to go the extra mile should get credit for that and have an opportunity to win in terms of public image because of that. A list of responsible importers could achieve that goal.
Your rapporteur is of the opinion that participation by importers and smelters/refiners is key for the success of this Regulation. Through accompanying measures, such as incentives for SMEs, many more importers will participate, what will improve the system.
Your rapporteur also wants the definition of importers to be widened to also enable traders to self-certify and participate in the new system.
Involvement of Parliament and comitology
Your rapporteur is aware that many practical issues will be dealt with in the context of handbooks and guidance documents. Your rapporteur wants to discuss in parliament amongst colleagues how to find the right balance regarding operational flexibility with regard to implementation and on the other correct involvement of the legislator on important practical issues, such as rhythm of required audits.
On top of that your rapporteur wants to propose some amendments regarding comitology. When the Regulation will indeed not let there be any discretionary power for the Commission, only requiring it to implement, then implementing acts are appropriate. If however during the legislative procedure the nature of that relationship changes and Commission gets more discretionary power due to amendments, then delegated acts might become more appropriate.
Your rapporteur already now wants to reject the obsolete regulatory procedure and replace it by the advisory procedure as envisaged by the Commission in Article 13, paragraph 2. Moreover, the inclusion of the non-opinion clause is not acceptable for your rapporteur.
(1)
Joint Communication on Responsible sourcing of minerals originating in conflict affected and high risk areas: Towards an integrated approach of 5 March 2014, (JOIN (2014) 8).
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OPINION of the Committee on Development (23.3.2015) for the Committee on International Trade
on the proposal for a regulation of the European Parliament and of the Council setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas
(COM(2014)0111 – C7-0092/2014 – 2014/0059(COD))
Rapporteur: Bogdan Brunon Wenta
SHORT JUSTIFICATION
The rapporteur fully supports the main objective of the legislative proposal, namely breaking the link between conflict and illegal exploitation of minerals. Breaking the nexus is essential, as the so-called conflict minerals undermine governments‘ aspirations for inclusive socio-economic development, good governance, rule of law and the protection of human rights.
The OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas was adopted by the OECD Ministerial Council on 25 May 2011. Its objective is to help companies respect human rights and avoid contributing to conflict through their mineral sourcing practices. OECD Guidance is recognised as a voluntary international framework for due diligence measures to be undertaken by companies that are required to file a conflict minerals report under Section 1502 of the Dodd-Frank Act. In addition, it has received the support of the United Nations and also the Lusaka Declaration, signed by 11 Heads of State of the International Conference on the Great Lakes Region (ICGLR) states that the processes and standards of the OECD Guidance will be integrated into the six tools of the Regional Initiative against the Illegal Exploitation of Natural Resources. Despite this widespread support, the uptake of this voluntary due diligence framework by companies has been weak (just 12 %).
The Commission proposal as it currently stands, being based on "do no harm" approach, risks doing no good either. The rapporteur is of the opinion that the European Union should show leadership on this issue and set up a mandatory self-certification mechanism for refiners and importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas. This approach would be in line with option IV considered in the Commission’s impact assessment.
This proposal for a regulation cannot be regarded as being solely a self-contained instrument of commercial policy and it should be viewed from the broader international perspective, including development cooperation. In order to guarantee the efficiency of the implementation, it is essential that the accompanying measures outlined in the Joint Communication entitled "Responsible sourcing of minerals originating in conflict-affected and high-risk areas. Towards an integrated EU approach" (JOIN (2014) 8) will be enacted in parallel with this Regulation.
AMENDMENTS
The Committee on Development calls on the Committee on International Trade, as the committee responsible, to take into account the following amendments: